Millennium 1st Group Limited v Johnson
[2017] NZHC 405
•13 March 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-001504 [2017] NZHC 405
BETWEEN MILLENNIUM 1ST GROUP LIMITED
Plaintiff
AND
CLIVE ASHLEY JOHNSON Defendant
Hearing: 2 October 2015 and 26 July 2016 Appearances:
M Taylor for the Plaintiff
M Kyriak for the DefendantJudgment:
13 March 2017
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 13 March 2017 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Kyriak Law Limited, Auckland
Parlane Law, Auckland
M Taylor, Auckland
MILLENNIUM 1ST GROUP LIMITED v JOHNSON [2017] NZHC 405 [13 March 2017]
[1] Millennium 1st Group Limited claims summary judgment against Clive Ashley Johnson for the full amount of its claim for unpaid rent and outgoings (totaling $151,161.43) under two leases, plus interest to the date of judgment at the default rate set out in the leases. The claim is made against Mr Johnson in his capacity as guarantor of the leases.
[2] The application for summary judgment is opposed.
[3] Before turning to the substance of my decision, I pause to mention that this matter came before the Court on several occasions, and it was adjourned at the joint request of counsel on the basis that they did not presently require judgment and would advise the Court if and when judgment was required. The same position pertained to the parties’contest over a caveat application in respect of which I issued judgment on 25 August 2016. I was subsequently advised that it was not the caveat application on which the parties had intended to seek judgment, but this summary judgment application, hence there has been a delay in the issue of this judgment. I regret any inconvenience to the parties arising from this misunderstanding.
Background
[4] Millennium is the registered proprietor of licensed premises known as the
Muddy Farmer Bar on Wyndham Street, Auckland City.
[5] Millennium bought the premises in April 2010 from the previous owner and acquired the reversion of the lease that had been granted to Mr Johnson’s company, Johnson Nominees Limited.
[6] Mr Johnson, at the direction of the previous owner, provided a written guarantee for the performance of the lease including payment of the rent and outgoings.
[7] On 13 January 2011, Johnson Nominees was in arrears with its payments of rent and outgoings under the lease to the tune of $78,049.02.1 Johnson Nominees
1 The amount of the arrears as at 13 January was rent of $29,187.50 and outgoings of $48,861.92.
failed to comply with a notice to remedy under the Property Law Act 2007 and on
31 January 2011 Millennium terminated the lease and entered into possession.
[8] It is common ground that Mr Johnson remains bound by his covenants under the guarantee in respect of Johnson Nominees’ default under its covenants under the lease. It is also common ground that Johnson Nominees’ obligations under those covenants was modified by agreement in May 2011, but quite to what effect is a matter of dispute.
[9] The agreement was made by a deed dated 2 May 2011 entered into by Millennium, Mr Johnson, Johnson Nominees, and several of Mr Johnson’s other companies. A key purpose of the deed was to settle the basis on which the outstanding obligations of Mr Johnson as guarantor under the lease for the tenant’s default would be resolved in return for Millennium’s agreement to grant a new lease of the premises.
[10] The date for the commencement of the new lease was 4 April 2011 though the lease itself is dated 21 April 2011. The agreed tenant for the new lease was one of Mr Johnson’s other companies, Johnson Cairns Limited. I refer to this new lease as the second lease.
[11] Despite the fact that the second lease has an earlier date than the deed, both sides accept that the deed sets out the basis on which the parties agreed to the lease. Neither side has found it necessary to explain the reason for the discrepancies in the dates.
[12] The deed identified the “debt” that was to be met in consideration for granting the new lease as being $140,000 and it imposed on Mr Johnson a requirement to pay $60,000 in reduction of the debt (which he met). It also gave him the opportunity to pay a further $56,000 in full satisfaction of the balance of the debt, subject to Johnson Cairns keeping its payment of rent and outgoings up to date as at
4 April 2012 (which Johnson Cairns did not fulfill).
The annual rent was $120,000 plus GST.
[13] Johnson Cairns also did not meet its obligations for rent and outgoings under the second lease. It fell into arrears, and on 3 September 2012 Millennium terminated the lease.
[14] As was the case with the original lease, Mr Johnson provided a written guarantee for the performance of the second lease including payment of the rent and outgoings. It is common ground that he remains bound by his covenants under the guarantee in respect of the ongoing default on the part of Johnson Cairns under its covenants.
[15] Millennium now seeks judgment for:
(a) A total of $80,000 for the unpaid balance of the “debt” pursuant to the first lease and the deed.
(b)$71,161.43 for rent and outgoings pursuant to the second lease, owing as at 3 September 2012 (the evidence does not disclose the breakdown of rent and outgoings within this total).
(c) $33,450.71 for default interest on $80,000 (calculated at 13% per annum) for the period 4 April 2011 to 22 June 2015, pursuant to the first lease.
(d) $23,908.62 for default interest on $71,161.43 (calculated at the rate of
12% per annum) for the period 3 September 2012 to 22 June 2015, pursuant to the second lease.
[16] The total that Millennium claims, including such interest to 22 June 2015, is
$208,520.76.
[17] Affidavits verifying the statement of claim have been filed by the plaintiff’s manager, Meisheng Zhu, who deposes to his belief that Mr Johnson has no defence to the claim. The plaintiff’s sole director and shareholder, Wei Wang, has also filed an affidavit in support. Mr Johnson has filed affidavit evidence in opposition.
Grounds of opposition
[18] Mr Johnson accepts that Millennium is right in its allegations that Johnson Nominees and Johnson Cairns defaulted under their respective covenants, and that he gave guarantees for outstanding rent, outgoings, and default interest at the rates claimed. He contends, however, that he has arguable defences to Millennium’s claim and that Millennium has not discharged the obligation it has of showing there are no such defences. His essential position is:
(a) In respect of the first lease, the amount of any tenable claim cannot exceed $20,000 as:
(i)The deed “replaced” the obligations of the tenant and guarantor under the lease with new obligations intended to be in full and final settlement of all claims arising under the lease. For that purpose the deed identified the “debt” that was to be paid as being the amount of the unpaid rent and outgoings as at the date of re-entry, which was not subject to interest for late payment. It also reduced the overall debt by $60,000 (effectively by a set-off for the transfer of the tenant’s chattels and fixtures).
(ii)The deed mistakenly recorded however the amount of the outstanding rent and outgoings (and therefore the debt) as being $140,000, whereas the amount actually outstanding was in fact around $80,000. He was unaware of the mistake until he saw Millennium’s evidence.
(b)In respect of the second lease it is arguable that nothing is owed as the lease was handed back to Millennium pursuant to a written agreement made on 31 August 2012. Pursuant to this agreement Millennium “accepted back” the business of Johnson Cairns, in full and final settlement of all claims for outstanding sums under the lease.
(c) Alternatively, the second lease was terminated on 3 September 2012, in which case the claim for rent and outgoings as at that date requires adjustment, for reasons that are threefold:
(i) Millennium has miscalculated the outstanding rent;
(ii)Johnson Nominees is entitled to a reduction in the rent by way of abatement for money spent on repairs which were the landlord’s responsibility under the lease. The amount spent was $18,450.41 (plus GST);
(iii) Johnson Nominees is entitled to set offs against the outgoings.
These are for profits lost of $8,378 (plus GST) when the bar had to be closed for the repairs; and for a counterclaim for loss (as yet undetermined) caused by Millennium’s wrongful refusal to consent to the assignment of the lease to a third party.
[19] The first ground is mainly concerned with the effect of the deed on the first lease and whether it was entered into by mistake in circumstances that provide the foundation for a defence. The remaining grounds concern the disputed existence of an agreement to terminate the second lease; and in the alternative, with issues relating to the calculation of the rent under that lease and whether there is an entitlement to an abatement; and with the question of whether there are arguable set offs against the outgoings.
[20] Mr Johnson contends that these defences cannot simply be dismissed as untenable, and that Millennium should be put to the proof of its claim at trial or at arbitration.
Legal principles
[21] Millennium applies for summary judgment under r 12.2 of High Court Rules. Rule 12.2 relevantly provides:
12.2Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if Staples Rodway satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
…
[22] Under r 12.2, the onus is on Millennium to establish its claims.
[23] A useful synopsis of the Courts’s approach to summary judgment applications is set out in the Court of Appeal’s decision in Jowada Holdings Ltd v Cullen Investments Ltd.2 Though determined under the former High Court Rules it remains apposite:
In order to obtain summary judgment under Rule 136 of the High Court Rules a plaintiff must satisfy the Court that the defendant has no defence to its claim. In essence, the Court must be persuaded that on the material before the Court the plaintiff has established the necessary facts and legal basis for its claim and that there is no reasonably arguable defence available to the defendant. Once the plaintiff has established a prima facie case, if the defence raises questions of fact, on which the Court’s decision may turn, summary judgment will usually be inappropriate. That is particularly so if resolution of such matters depends on the assessment by the Court of credibility or reliability of witnesses. On the other hand, where despite the differences on certain factual matters the lack of a tenable defence is plain on the material before the Court, to the extent that the Court is sure on the point, summary judgment will in general be entered. That will be the case even if legal arguments must be ruled on to reach the decision. Once the Court has been satisfied there is no defence Rule 136 confers a discretion to refuse summary judgment. The general purpose of the Rules however is the just, speedy, and inexpensive determination of proceedings, and if there are no circumstances suggesting summary judgment might cause injustice, the application will invariably be granted. All these principles emerge from well known decisions of the Court including Pemberton v Chappell (1987) NZLR
1, 3-4, 5; National Bank of New Zealand Ltd v Loomes (1989) 2 PRNZ
211,214; and Sudfeldt v UDC Finance Ltd (1987) 1 PRNZ 205, 209.
…
[24] Also useful is the more recent statement of principle set out in the Court of
Appeal’s decision in Krukziener v Hanover Finance Ltd at [26]:3
2 Jowada Holdings Ltd v Cullen Investments Ltd CA 248/02, 5 June 2003 at [28].
3 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26] per Miller J.
The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ
84 (CA). [Emphasis added]
[25] The facts of this case are such as to require the “robust and realistic approach” advocated for in Bilbie.
The first lease
[26] I begin with the claim relating to the first lease. The overarching question here is whether there is an arguable defence to the claim for the balance of $80,000 said to be owing on the “debt” plus default interest, such that summary judgment against Mr Johnson as guarantor would be inappropriate.
[27] At issue is whether the debt referred to in the deed is overstated by $60,000 and whether it is free of any interest, as the defendant claims.
Liability independent of the deed
[28] Both sides also appear to accept as uncontroversial the nature and extent of what Johnson Nominees’ liability for breach of its covenants would have been prior to any modification brought about by the deed. In short, Johnson Nominees would have been liable for:
(a) The actual amount owing for unpaid rent and outgoings as at
31 January 2011 (the date of re-entry). This was approximately
$80,000, and not the sum of $140,000 referred to in the deed.
(b)A further $60,000, being damages for loss following termination of the lease resulting from Johnson Nominees’ breach (such damages being equivalent to what the rent and outgoings would have been had the lease continued until 4 April 2011 (the date of commencement of the second lease).
(c) Default interest at 13% per annum on $80,000 plus a further sum for loss of such interest on the “lost” rent and outgoings.
Liability under the deed
[29] The dispute, however, is over Johnson Nominees’ liability after the deed.
[30] Both sides accept that the intention of the deed was to record the debt that was to be paid in consideration for Millennium’s agreement to grant the new lease; to set the terms for the payment of that debt and allowable reductions to it; and to provide for Mr Johnson’s ongoing liability as guarantor in the event that payment was not made in breach of those terms. It is therefore necessary to look to the deed to determine how the liabilities of Johnson Nominees and Mr Johnson that arose from Johnson Nominees breach of the lease where changed and how Mr Johnson’s guarantee was affected. It is the deed that records the parties’ agreement in these respects.
[31] The introduction to the deed identifies the “debt” that is to be satisfied pursuant to the deed’s operative provisions. It also records the agreement relating to the transfer of the tenant’s fixtures and chattels which was set off as an agreed reduction against that debt:
C. [Johnson Nominees and Russell Green] as chargeholder pursuant to the powers of sale in the General Security Agreement held over Johnson
Nominees has agreed to sell certain fixtures, fittings and chattels in the premises to Millennium for $60,000.4
D. Johnson Nominees … is indebted to Millennium in the sum of $140,000 (incl. GST) for the total amount of all arrears of rent and operating expenses under the First Lease (“debt”) for which [Mr Johnson] as guarantor is liable.
E. [Mr Johnson] has requested Millennium to lease the premises to
[Johnson Cairns] as a licensed restaurant/bar.
F. The parties have agreed that Millennium shall grant [Johnson Cairns] a lease of the premises (“second lease”) subject to and upon the parties entering into this deed.
[Emphasis added].
[32] Relevantly, the operative provisions of the deed provide for the reduction of the debt by $60,000 and the consequences in the event of failure to pay the balance:
2. In consideration of the payment of …$60,000 by Millennium [Johnson Nominees Limited and Russell Green] hereby sets over and transfers to Millennium and Millennium accepts all the fixtures fittings and chattels situated in the premises …
…
5. [Mr Johnson] shall conditional upon Millennium making the above payment, pay the sum of $60,000 to Millennium in partial reduction of his liability as guarantor under the first lease.
6. If all monies due under the second lease have been paid by [Johnson Cairns]
for the period ending 4.00pm, 4 April 2012, then:
a) In consideration of [Mr Johnson] having procured [Johnson Cairns] to enter into this deed and the second lease, and to comply with its obligations to pay all monies due thereunder to that date, the sum
outstanding ($80,000) under the debt shall be reduced to $56,000;
4 Russell Green was yet another of Mr Johnson’s companies. It was a party to the deed.
b) If the debt shall have been reduced to $56,000 as set out in subparagraph (a) hereof [Mr Johnson] may repay the balance of the debt outstanding ($56,000) in one sum, on or before 4.00pm, 4 April 2012 at which time Millennium shall set off, transfer and assign to [Mr Johnson] all its interest in the debt:
…
7. If the debt is not repaid in full in accordance with paragraphs 6(a) and (b) hereof [Mr Johnson’s] liability as guarantor under the first lease shall continue until the debt has been fully repaid. 5
[Emphasis added].
[33] The defendant submits the amount owing under the deed may have been overstated by $60,000. Though the defendant does not express his submission this way, it is best understood as essentially an argument based on the law of mistake.
[34] It is apparent that the case for Mr Johnson centres on the words “rent and outgoings” in clause (C) of the introductory provisions of the deed. He says he understood that Johnson Nominees had agreed to pay the unpaid rent and outgoings under the first lease, and that the debt under the deed was limited by the date that the landlord cancelled the lease, and was not to include post-termination losses.
[35] In support, counsel rightly points out that a landlord’s right to rent and outgoings ends with the termination of the lease. Though he recognized the tenant’s ongoing potential liability for damages he submitted that this was brought to an end by the deed which must have used the term “rent and outgoings” advisedly. He also argued the remaining liability was obviously not intended to include interest as the deed was intended to provide the basis for a full and final settlement of the tenant’s
obligations.
5 It is also common ground that the preconditions for the first deduction of $60,000 were fulfilled. (The fixtures, fittings and chattels were transferred to Millennium, and Mr Johnson paid the
$60,000 he was required to pay from the proceeds). The tenant’s debt (and Mr Johnson’s
liability for it) was reduced by that amount.
[36] I find these arguments to be unconvincing given the factual context in which the deed was entered into. On a robust approach to the interpretation of the deed and Mr Johnson’s claims, the following reasons weigh against the defendant’s submission:
(a) First, there can be no difference between the understanding that Johnson Nominees and Mr Johnson held as to the “debt”. He was the sole director and shareholder of Johnson Nominees and he entered into the deed of the company and personally.
(b) Secondly, though he says he says the calculation of the debt of
$140,000 was a total mystery to him, he acknowledges in an email dated 21 March 2011 that he signed the deed despite that uncertainty on his part “to move forward in a difficult situation”. Implicit in that acknowledgment is that whether or not the amount of the debt accurately reflected the actual rent and outgoings was not material to his decision to enter into the deed. He was plainly a person of considerable commercial experience directing a number of companies who would have sought clarification of the “mystery” had it been material to him. Instead he chose to accept Millennium’s position as to what it required to be compensated for loss suffered for the rent and outgoings it would have received had the lease continued up until the commencement of the new lease. Plainly he was willing to accept the debt, whether it was “rent and outgoings” or also included the “rent and outgoings” that would have been received had the lease continued after the breach.
(c) In these circumstances the suggestion that the reference to “rent and outgoings” supports an understanding on Johnson Nominees’ part that it would only be liable of losses to the date of termination of the lease is most improbable. Rather, that term was loosely descriptive of the agreed and acknowledged debt of $140,000 – it was not determinative of the limits of the debt the parties agreed must be paid and it does not point to a defence based on mistake.
(d)This is further supported by the parties’ agreement that a payment of a further $56,000 would clear the balance of the debt (after allowing for the reduction of $60,000 for the transfer of the chattels). It is improbable that the parties would have agreed on a further $56,000 if the balance (after allowing for the reduction of $60,000 for the transfer of the chattels) was a mere $20,000. It is also supported by Mr Johnson’s own contention that the deed was intended to provide the terms for a full and final settlement of Millennium’s potential claims in order to enable the parties to move forward with a new lease.
[37] In these circumstances I do not agree with the submissions of counsel for
Mr Johnson that the deed does not create a debtor / creditor relationship for
$140,000, or that it merely states as “a matter of fact” what the actual debt for rent and outgoings was. Further, I do not accept the implication inherent in these submissions that the reference to $140,000 was a mistake, and that the parties perpetuated the error throughout the deed. I reject the argument that the deed lacks any express agreement or acknowledgement of the debt. I am satisfied that is exactly what the deed intended and that such acknowledgment is consistent with the operative provisions of the deed, in particular clauses 6 and 7. The required payments in these provisions would make no sense at all if the intention of the parties was not to deliberately incorporate in the debt the full extent of Millennium’s loss. That interpretation is the only interpretation that gives any logical and sensible meaning to both the introductory and operative provisions of the deed.
[38] Counsel for Mr Johnson suggests his argument is consistent with s 251 Property Law Act 2007, “with the Court having power to order payment of rent up to the date of cancellation or a later date on which the Court yields up possession”. That is no doubt right, but it does not prevent the parties from agreeing on an amount of rent and outgoings for the purpose of settlement. This is reinforced by Mr Johnson’s own claim that the “debt” was the amount to be paid in “full and final settlement” of all liabilities under the lease. It is also supported by his own evidence that he “simply wanted to move forward”. His concern was plainly not with the amount.
[39] Taking a robust view then, I am satisfied the parties did intend to fix the debt at $140,000. In reaching this conclusion. I bear in mind what was said in Firm Pl1 v Zurich Australian Insurance Ltd T/A Zurich New Zealand. The Supreme Court discussed the proper approach to interpreting contractual documents and eliciting contractual intention:6
It is sufficient to say that the proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were in at the time of the contract”. This objective meaning is taken to be that which the parties intended. While there is no conceptual limit on what can be regarded as “background”, it has to be background that a reasonable person would regard as relevant. Accordingly, the context provided by the contract as a whole and any relevant background informs meaning.
[40] There remains the issue of interest. Counsel for Millennium relies upon clause 7 of the deed. He argues that it is clear that it revives the obligation for default interest under the lease in the event that the agreed “debt” is not paid on time. Counsel for Mr Johnson contends that that is incorrect, or at least that there is an ambiguity about the liability for interest. I agree. The issue of interest is not free of ambiguity and it is arguable either way. The argument is not one appropriately determined by summary judgment.
The second lease
[41] Regarding the second lease, there is no dispute that Millennium has demonstrated that it has a prima facie basis for the rent, outgoings and interest that it claims. The real question is whether it is right that the defendant has not made out a sufficient evidential foundation for this defence. This turns on several issues.
The handwritten document dated 23 August 2012
[42] The first issue is whether the lease was terminated by a written agreement dated 23 August 2012, and whether it was a term of such agreement that Millennium
6 Firm Pl1 v Zurich Australian Insurance Ltd T/A Zurich New Zealand [2014] NZSC 147, [2015]
1 NZLR 432 at [60].
would accept back the business of Johnson Cairns in full and final satisfaction of all
of Johnson Cairns’ obligations under the lease.
[43] The defendant relies on a handwritten document dated 23 August 2012 which states:
I acknowledge that on Tuesday the 28/August 2012, the amount of $17,663 […] is to be paid. If not, the business will be given back to Millennium less the chattels and stock and any private item owned by Gary Ashley.
[44] Mr Zhu acknowledges he signed this document. Mr Johnson says it was negotiated on his behalf by a Mr Ashley, and that Mr Ashley says he and Mr Zhu agreed that if the stipulated sum was not paid on 28 August 2012, Millennium would take the “business” off Johnson Cairns.
[45] I agree with counsel for Millennium that the document cannot be construed as an agreement to fully and finally settle Millennium’s claims. On an objective reading, the document reads as nothing more than a statement of the obvious – if the tenant did not pay the outstanding debt, Millennium was putting it on notice that it would have to “give back” that which Millennium was entitled to take back, which was the lease. Plainly in that context the term “the business” can only be a reference to the lease. On any objective assessment, the “acknowledgement” in the document points to nothing more than that the consequences of the tenant’s failure to pay the agreed sum towards outstanding rent and outgoings would result in forfeiture of the lease.
[46] I accept that the particular factual context in which the document came into being makes it appropriate to adopt a robust attitude to the defendant’s assertions. This was a case of a tenant that was struggling to meet its obligations. It was also a case of a landlord that had a right to terminate the lease and to retain all of its rights to payment. The defendant provides no plausible explanation as to why the landlord would take over a failing business and give up those rights without stating so in the clearest of terms.
Miscalculation of rest and entitlement to abatement
[47] The defendant submits that there has been a miscalculation of the rent and/or there is an entitlement to an abatement of rent.
[48] The defendant’s contentions relating to miscalculation of the rent are essentially twofold:
(a) The rent and outgoings ledger produced by Millennium shows two negative entries on 19 May 2012 and 31 August 2012 for dishonoured cheques of $13,890 and $12,000 respectively.
(b) The rent ledger also shows a debit dated 4 September 2012 for
$13,800 for payment of rent for the month of September, and that this is incorrectly claimed because the lease did not continue during the month of September.
[49] Counsel for Millennium submits that these contentions are wrong, because proper allowance has been made for the dishonoured cheques, and because rent has only been charged for the duration of the lease to the date of termination.
[50] It is not possible on the limited evidence before the Court to determine whether there is substance to either side’s contentions. This is due at least in part because the plaintiff’s own evidence does not set out clearly the actual rental payments that were not met. The plaintiff provides a series of statements and invoices which should have been properly analysed by the plaintiff itself in its evidence. It is not for the Court in the context of summary judgment to undertake a detailed analysis into material of this kind.
[51] In these circumstances I am not satisfied the plaintiff has proved the quantum of the rent is correctly calculated, or shown that there is no defence to the defendant’s claims as to miscalculation of quantum. As the total amount at issue is
$39,600 plus GST, I accept the defendant’s submission that the claim for rent may be
overstated by this amount.
[52] I deal next with the claim to an entitlement for an abatement of rent for repairs to rectify water damage resulting in the collapse of a wooden floor in the bar. The amount claimed for repairs is $18,450.41 plus GST. Millennium relies on clause
8.1 of the lease, which requires the tenant to maintain the premises. This includes the landlord’s fixtures and fittings, which include those purchased by the landlord pursuant to the deed of 2 May 2011. The defendant submits however that clause 8.4 of the lease applies and overrides clause 8.1. Clause 8.4 states:
Notwithstanding any other provision of this lease, the tenant shall not be liable to repair any inherent defect in the premises or the landlord’s fixtures or fittings …
[53] As counsel for the defendant points out, the defendant’s insurers stated in a letter dated 23 February 2012 that the floor rotted over a gradual period of time. He submits that given that the date of commencement of the lease was 4 April 2011, it is certainly arguable that the damage was the result of an inherent defect and should have been repaired by the landlord.
[54] Counsel relies on the ancient common law right that a tenant has to set of any sum that the tenant actually expends for repairs which the landlord has in breach of its obligations failed to carry out.7
[55] Counsel for Millennium counters these arguments with a couple of submissions. First, with respect to the insurer’s letter mentioned above, he argued that the letter shows that the tenant’s claim was declined following investigation by a loss assessor and plumber, and that their determination suggests that the damage was not the landlord’s responsibility. It suggests rather that the cause of damage was an alleged malfunction in the chilling area or the mixing lines, or due to condensation in the chiller units.
[56] I am not satisfied that it is safe on the evidence before the Court to determine the exact cause of the damage or the period over which it occurred. These are unanswered questions that may well bear relevance on the question of whether the
damage is properly viewed as an inherent defect.
7 Laws of New Zealand Set-off (online ed) at [18]-[19].
[57] Secondly, counsel for Millennium submitted that in any event the tenant’s obligation is to pay rent without deduction or set-off. He relied on clause 1.1 of the lease. Though this clause (which I refer to later in this judgment) may well trump Mr Johnson’s argument for summary judgment, there is a further complicating factor that Millennium must overcome for the purpose of summary judgment. Millennium has not provided a proper breakdown to show how much of the sum it claims is for outstanding rent. Even were I to find therefore that there is an entitlement to rent without deduction, it would be a finding limited to liability and not to quantum.
[58] For reasons I will come to, there is the possibility that there is an entitlement to set-offs against the outgoings. Given that there appears to be at least some arguable basis for setting off the claim for the cost of the repairs against the outgoings it would be unsafe to enter judgment for the rent without reference to the quantum.
[59] The dispute is not therefore one that I can resolve on the limited and disputed material presently before the Court. In the circumstances the plaintiff has not done enough to prove what its entitlement to rent is or shown the defence is untenable.
Sets-off and counterclaim
[60] I turn to the remaining issues: whether there are set-offs against the outgoings for lost profits and for a counterclaim for wrongful refusal to consent to an assignment.
“Outgoings”
[61] The first claimed set-off is for “lost profits”. The defendant says $8,378 (plus GST) in profits was lost when the premises were closed for several days in order to undertake the repairs to the damaged floor.
[62] Counsel for the plaintiff argues that there is no right to set-off. Counsel relies on clause 1.1 of the lease. This sets out what the parties expressly agreed in terms of the landlord’s right to be paid rent free of any deduction or set-off. For reasons best
known to the parties, they have said nothing in clause 1.1 that might reflect an intention that this right extends to outgoings. Clause 1.1 states:
Rent
1.1 THE Tenant shall pay the annual rent by equal monthly payments in advance (or as varied pursuant to any rent review) on the rent payment dates. The first monthly payment (together with rent calculated on a daily basis for any period from the commencement date of the term to the first rent payment date) shall be payable on the first rent payment date. All rent shall be paid without any deductions or set-off by direct payment to the Landlord or as the Landlord may direct.
…
[63] As Venning J noted in a previous case, this apparent omission is a
“complicating feature” which he describes as follows: 8
… cl 1.1 only refers to rent. It does not refer to outgoings, so the claim for outgoings may not be excluded from set-off. The consequence of that is a matter for consideration at the summary judgment stage. For present purposes, the effect of cl 44.3 remains that Drake may pursue these proceedings and its application for summary judgment for rent and outgoings.
[Emphasis added].
[64] There is yet another complicating feature in relation to the outgoings. Mr Johnson contends there is a set-off for the amount of a counterclaim for breach of the landlord’s covenant not to unreasonably withhold consent to the assignment of the lease. Counsel for Mr Johnson relies on the claimed set-off as a defence to summary judgment. He also submits that the extent of the set-off is to be dealt with by arbitration. Relevantly, clause 44 of the lease states:
Arbitration
44.1 UNLESS any dispute or difference is resolved by mediation or other agreement, the same shall be submitted to the arbitration of one arbitrator who shall conduct the arbitral proceedings in accordance with the Arbitration Act 1996 and any amendment therefore or any other statutory provision then relating to arbitration.
…
8 Drake City Ltd v Tasman-Jones, [2016] NZHC 899 at para [26].
44.3 THE procedures prescribed in this clause shall not prevent the Landlord from taking proceedings for the recovery of any rent or other monies payable hereunder which remain unpaid or from exercising the rights and remedies in the event of such default prescribed in clause 28.1 hereof.
[65] It is difficult in the light of clause 44.3 to construe the lease as supporting an intention on the part of the parties to bar set-off as a defence against a claim for outgoings. The real argument therefore relates to the question whether there is an arguable defence to summary judgment for breach of the covenants for repair and assignment. In other words, the alleged breaches may be relied upon as defences to summary judgment assuming there is a tenable argument about breach – but only in relation to the claim for outgoings and interest. They are not available defences in relation to the claim for rent.
[66] Counsel for Millennium says the claimed defence relating to a counterclaim is not available. But he relies on the no-set-off clause, and I have found there may well be an argument that there is room for a set-off against the outgoings and the interest.
Breach of covenant relating to assignment
[67] I have already dealt with the issue of whether breach of the covenant for repair is arguable. I turn now to the issue of whether breach of the covenant relating to assignment is arguable.
[68] It is common ground that the defendant obtained Millennium’s agreement in writing dated 15 June 2012 to consent to the sub-leasing of the premises to Hobson Street Investments Limited, but that it failed to provide the required consent despite numerous requests. Counsel for Millennium submits that Millennium was not asked to do this; and that the contention that it failed (in breach of covenant) to do so is simply not credible, as the defendant has produced no contemporaneous documentation to support a denial of a sub-lease. He contends the only sensible conclusion from an objective assessment of the available evidence is that the proposed sub-lessor was unable to obtain a liquor licence, and accordingly its agreement with Johnson Cairns did not proceed. That outcome, he submits, has nothing to do with Millennium.
[69] Counsel for Mr Johnson submits sufficient evidence has been put before the Court to raise a doubt about the plaintiff ’s claim, and that the claim is one that should be subject to discovery in the normal way. He points out that the defendant has produced the relevant agreement for sale and purchase, that it was conditional on the issue of a liquor licence, and that there is evidence that the landlord’s consent was required before a liquor licence would be issued; and further, that the claim has been made that the landlord frustrated the sale by refusing to give the required consent.
[70] I am satisfied the dispute is not one that I can resolve on the limited and disputed material presently before the Court. In the circumstances the plaintiff has not shown the defence is untenable.
Result
[71] For reasons I have discussed I am satisfied that the case for summary judgment for the debt claimed in relation to the first lease is made out, with the exception of the claim for interest. I am not satisfied that the case for interest is clear cut and beyond dispute.
[72] For reasons I have discussed I am not satisfied that the case for summary judgment for the rent in relation to the second lease is made out. There are possible claims for repairs, related lost profits, and a possible counterclaim for refusal to consent to a sub-lease. Though clause 1.1 makes clear the landlord’s right to rent is without set-off or deduction, in this case these is insufficient evidence to show how much of the plaintiff’s claim is rent and how much is outgoings, and in these circumstances I do not think it appropriate to attempt to determine the extent to which the plaintiff may be entitled to judgment for the rent.
[73] Accordingly Millennium’s application for summary judgment is allowed in
part, and declined in part as follows:
(a) I enter summary judgment against Mr Johnson for $80,000, being the unpaid part of the debt owing under the deed.
(b)I decline summary judgment for the interest claimed under the first lease.
(c) I decline summary judgment against Mr Johnson for the rent, outgoings and interest claimed as owing in respect of the second lease.
[74] Costs are reserved. Memoranda relating to costs are to be filed and served by not later than 24 March 2017, failing which costs will be reserved in accordance with the Court of Appeal’s decision in NZI v Philpott.9
[75] I add as a postscript that it remains open to Millennium to refer the balance of the claim for rent and outgoings to arbitration. In view of my findings that there is an arguable dispute on in a number of respects (including in relation to alleged breaches by Millennium as well as Johnson Nominees) to the parties may consider it appropriate to refer all of the remaining issues to arbitration – in which case the remaining issues in this proceeding should be stayed pending the outcome of
arbitration.
Associate Judge Sargisson
9 NZI Bank Ltd v Philpott [1990] 2 NZLR 403, (1990) 3 PRNZ 695.
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